DENVER—Over the last 18 months, John Klahn has purchased nine homes for less than $100,000 each.

Klahn, a network engineer at a Denver area hospital, said he looks at a dozen houses a week, searching for the next investment.

“If it were up to me, I would buy one a week until the prices started significantly turning around,” Klahn said.

Klahn rents the homes for as much as $450 more than the mortgage, insurance and taxes. He hopes to sell the homes for a profit after the market turns around.

The number of homes in the seven-county metro area sold for less than $100,000 has increased dramatically over the past three years, as the real estate market has struggled and foreclosures have soared.

In 2005, 355 homes sold for less than $100,000. So far this year, there have been 2,015, with almost 90 percent of them in foreclosure.

“Quite a few of these are sales to investors who are renting out the homes to foreclosure victims,” said Lon Welsh, managing broker of Your Castle Real Estate. “They can buy a home for under $90,000, have a payment of about $550—$650 with taxes and insurance—and rent it almost immediately for $900 to $1,100 per month.”

The number of foreclosures in the seven-county metro area skyrocketed to 27,024 in 2007, a 41 percent increase over the previous year, according to The Genesis Group and SKLD Information Services LLC.

In the first half of 2008, there were 14,659 foreclosures, a jump of more than 9 percent from the same time last year.

With the vacancy rate of for-rent condos, single-family homes and other small properties such as duplexes dropping to a seven-year low of 2.7 percent, it’s easy to find renters for the properties. The apartment vacancy rate is 6.2 percent.

But with Colorado receiving an estimated $88 million to buy foreclosed properties within 18 months, the investment party is about to end, said Kathi Williams, director of the state’s Division of Housing.

The money is part of a new law that is intended to rescue about 15 percent of cash-strapped homeowners in danger of foreclosure in the next year or so.

“The goal will be to have the local government buy the property and keep the family in there,” Williams said. “I think it’s going to make it more difficult for investors if local governments are going in and offering 60 cents on the dollar.”

The measure includes $300 billion in new loan authority for the federal government to back cheaper mortgages for troubled homeowners; $3.9 billion for communities to fix up foreclosed properties causing blight in neighborhoods; and $15 billion in tax cuts, including an expanded low-income-housing tax credit and a credit of up to $7,500, which would have to be repaid later, for some first-time homebuyers.

A lot of the homes under $100,000 are concentrated in areas like north and south Aurora, Montbello, Green Valley Ranch, Commerce City and southwest Denver, said Charles Roberts, a broker with Your Castle who has sold about 45 homes for less than $100,000 in the last 12 months.

“The cash flow is just extraordinary,” Roberts said. “People are really banking on future appreciation as the market corrects.”

Investors are able to buy homes that sold for $140,000 two years ago for $55,000 now, Roberts said.

“Prices have collapsed 40 to 50 percent, sometimes 60 percent,” he said. “Every single closing I’ve had, the banks have lost between $60,000 to $80,000.”

Welsh said five years ago it was really difficult—bordering on impossible—to find a home for less than $100,000.

“It was much tougher for first-time buyers,” he said.

Now, with investors rushing to snap up the homes, they’re becoming harder to find. With the values plummeting, traditional sellers are not putting their homes on the market unless they absolutely have to sell, said Cynthia Kenner, a broker at Keller Williams who specializes in bank-owned property.

“The majority are either short sales or bank-owned,” said Kenner, who estimates she sells about 60 percent of the homes she has listed to investors. “We’re seeing multiple offers on many of them and they’re bidding up over the asking price. That will help to increase prices and stabilize the market.”

Chris Pitaniello, a broker with ReMax Alliance who also specializes in bank-owned properties, estimates 30 percent of his inventory is valued at less than $100,000. The most expensive bank-owned property is $1.5 million and the cheapest is $12,500.

But unlike Kenner and Roberts, about 80 percent of Pitaniello’s properties are sold to people who will live in them.

Regardless of whether the buyer is an investor or an owner-occupant, financing is increasingly hard to get.

“The rules have tightened down so much that they’ve made us (investors) into what seems to be a high-risk borrower,” Klahn said.

“The reality is, we’re not. There are other ways to do it, but it’s really hard to get conventional financing right now.

“Banks loan mostly on the value of the house as opposed to me as a credit risk. They look at the house and say this is a great bargain.”